3D Systems Corporation Is Surging: Here's Why

What: Shares of 3D Systems were surging on Monday after it released its fourth-quarter earnings before the market opened. At one point in early trading, 3D System popped over 27%, while rival Stratasys traded 9% higher.

So what: As expected, 3D Systems' final quarterly results fell in line with the preliminary results it announced a few weeks ago. During the quarter, revenue fell 2% year over year to $183.4 million, which translated to an adjusted profit of $20.9 million, or $0.19 per share. Compared to the third quarter, 3D Systems' fourth-quarter revenue increased 21%. Management attributed this notable sequential improvement to favorable timing of large industrial and healthcare orders that occurred during the quarter.

Overall, the industry challenges that have plagued 3D Systems and Stratasys during 2015 persisted in the fourth quarter. 3D Systems' hardware revenue fell by 16.1% year over year to $73.6 million, reflecting continued weakness in customer spending. Previously, Stratasys theorized that the industry slowdown affecting it and 3D Systems was likely driven by customers purchasing more 3D printers in previous years than they needed. Essentially, this created an oversupply of 3D printing capacity in customers' hands, which has softened demand.

On the profitability front, 3D Systems saw its gross margin fall 20 basis points year over year to 47.7%. This figure excludes the impact of exiting the consumer 3D printing business, which resulted in a $27.4 million charge mostly against inventory.

Now what: Management noted on several occasions on the earnings call that it's in the process of conducting a comprehensive review of its entire business to better prioritize its resources, focus, and strategy. Additionally, management believes the uncertainty that clouded the 3D printing industry in 2015 will likely continue into 2016, and consequently, the company won't be issuing guidance.

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Ultimately, it's clear that 2016 will be filled with 3D Systems navigating a host of internal and external challenges. Fortunately, the company ended the year with over $155 million in cash and zero long-term debt, and it hasn't tapped into its $150 million credit facility. This should buy it time to continue restructuring while it waits for the demand picture to improve.